Your Credit Score Counts
Your credit score is a primary driver in determining what type of mortgage and/or interest rate you’re likely to qualify for or if you can be approved for a home loan.
In my opinion your credit score is the most important number you have, maybe 2nd to your Social Security number.
Understanding Your Credit Score
The three major credit bureaus are Experian, Equifax, and TransUnion. They each use a slightly different scoring system, but the FICO score is the most universally recognized when applying for major credit.
The biggest misunderstanding is that there are several FICO scores depending on how the score is used. There are auto scores when you’re purchasing a car, scores for insurance, employment, and of course mortgages. Each score will be different, optimized by the bureau for the intended purpose.
FICO scores range anywhere from the lowest 300 to the highest 850 but again each bureau uses a slightly different scale. There are several factors that determine your score in descending order:
- Payment History – 35%
- Credit utilization ratios – 30% – Comparison between your balance and available limits
- Length of credit history – 15%
- Credit mix – 10%
- New credit – 10%
Concentrate on the top two and the others will fall into place.
FICO currently grades scores like this:
- 800+ – Exceptional
- 740-799 – Very good
- 670-739 – Good
- 580-669 – Fair
- <580 – Poor
These have changed during my career. 720 used to be the score that provided the best interest rates. Now it’s 740 and in many cases 760. Great credit scores allow you to take advantage when opportunities present themselves. You want that 0% rate on a new car – 740+ credit score.
I like to use a basketball analogy when explaining scores. If you just dribble and don’t take a shot you’re not going to score. You must play the game to win.
How can you play to win with credit scores?
- Always pay your bills on time
- Act on any notice immediately (medical, cable, utility)
- Have two revolving accounts preferably Visa, Mastercard, or Discover
- Always keep revolving balances below 30% of the available credit line, preferably lower
- Ignore temptations to open new accounts
Fortunately, there are ways to improve your scores. Swift action and time. You’re entitled to a free copy annually from each of the bureaus, but you may have to pay a nominal fee for the scores. Request a copy of your credit reports today, www.annualcreditreport.com .
Questions, concerns, or assistance? Feel free to reach out. Home ownership is a dream everyone should experience. We’re here to help.